By Timothy Puko

Oil in 2016 had its biggest annual gain since the financial crisis, even in a year that also sent prices dipping to a decade low.

Saudi Arabia and its allies in the Organization of the Petroleum Exporting Countries are reclaiming their role as the world's cartel, pledging to cut output to end a glut that had shaken the market for two years. Their moves have fueled a gradual rally since February, with many traders now betting oil will approach $60 a barrel within just a year of a crash that had pushed it below $30 and shook financial markets world-wide.

"We had OPEC cement their relevance," said Dan Pickering, who oversees $1.9 billion in investments for the asset-management arm of Tudor, Pickering, Holt & Co. in Houston. "There's clearly a better floor under oil prices because OPEC has told you they're not happy with $40 oil prices anymore."

Questions about OPEC's power and willingness to use it have been the biggest force in oil this year, and that is still the case in the waning days of 2016 as traders wait to see whether OPEC follows through on a plan to cut global supply by more than 1%. While prices have been on the rise, rallies have repeatedly stalled out around $50 a barrel with many still skeptical of OPEC's commitment, or predicting U.S. companies will drill more to fill the gap.

U.S. crude finished the year up about 45%, and Brent, the global benchmark, up 52%. It was their biggest yearly gains since 2009 on the back of a strong year-end that brought four winning months in the last five. Both benchmarks have done even better from recentlows, more than doubling since last winter brought the lowest prices since 2003.

On Friday, light, sweet crude for February delivery settled down 5 cents, or 0.1%, at $53.72 a barrel on the New York Mercantile Exchange. Brent lost 3 cents, or 0.1%, to $56.82 a barrel on ICE Futures Europe.

Crude futures have held close to unchanged for more than two days now, with many traders out for the holidays and the few who remain unwilling to make big bets, brokers and analysts said. December's rally has stalled out in recent days, with the U.S. Energy Information Administration reporting increases in stockpiles and many traders wondering about major uncertainties going into next year.

Many are still awaiting data to prove OPEC is following through on output cuts, which aren't scheduled to begin until January and could take several months before verifiably causing record-high storage levels to fall. Others are wondering whether President-elect Donald Trump's plan to slash regulations will lead to more oil flooding the market and whether U.S. shale-drillers will increase output with prices now above $50 a barrel. Any of those factors could limit the rally going forward or even send prices lower again.

What U.S. producers do in 2017 will be one of the biggest questions for traders. They helped cause the oil glut by figuring out how to tap large quantities of oil from shale rock. That led Saudi Arabia and other global exporters to raise their own production to record highs and compete for customers at lower prices. With those countries now cutting back to end oversupply, U.S. producers may be the big beneficiaries.

Prices around $50 have already waylaid the risk of bankruptcy that threatened those companies a year ago. Many predict those shale drillers have cut their costs enough to profit at prices above $50 and can now raise production to replace the supply cut by their global competitors.

U.S. producers have been selling the rights to their 2017 and 2018 production in advance and are putting more rigs to work. The low prices earlier this year caused U.S. oil production to drop more than a 10th from its record high of 9.6 million barrels a day in June 2015. But that fall has started to reverse in recent weeks. U.S. production will reach 9 million barrels a day again by the end of the first quarter, said Jim Ritterbusch, president of Ritterbusch & Associates.

"There's going to be incentive for producers to keep increasing their drilling rigs [and] that will translate into higher production," he said. "Six months ago I don't think too many people would have expected that."

The number of working rigs in the U.S. is likely to rise 30% within the next six months, analysts at Morningstar Inc. said in a note late Thursday. That would contrast with a year ago, when falling prices forced dozens ofU.S. producers to file for bankruptcy and caused cutbacks so steep that the U.S. rig count rapidly fell to historic lows.

It will likely take several months for the continuing increase in U.S. rigs to produce any increase in output, and that timing could limit how long oil can keep rallying. OPEC's agreement to cut lasts only six months before its members have to revisit the deal to renew it, and, if it ends, they could send a surge of new oil onto the market just as U.S. producers are doing the same. That is likely to keep U.S. oil prices at $55 in 2016, Morningstar said.

"The recent rally in oil prices is occurring more on faith than fact," said Harry Tchilinguirian, head of commodity strategy at BNP Paribas SA.

Gasoline futures settled down 1.7 cents, or 1%, at $1.6651 a gallon. It finished the year up 39.8 cents, or 31%, its largest one-year, percentage gain since 2009, snapping a three-year losing streak. It gained nearly12% in the last month alone, accounting for almost all of its gains from the last quarter.

Diesel futures gained 0.06 cent, or 0.04%, to $1.7043 a gallon. It finished the year up 60.36 cents, or 55%, its largest one-year percentage gain since 2007.

Write to Timothy Puko at tim.puko@wsj.com

(END) Dow Jones Newswires

December 30, 2016 16:38 ET (21:38 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.